The recently-launched NSE’s Crude Degummed Soya Oil (CDSO) futures contract has evoked a large interest from the participants — especially the importers and processors of CDSO. This is the exchange’s first agricultural commodity futures contract.
After NCDEX’s silent withdrawal of CDSO futures contract soon after the launch in 2017, NSE’s launch is seen with much excitement and hope.
Speaking to
Liquidity issue
Sources in the soya oil processing trade informed that NCDEX’s failure in CDSO was primarily a liquidity issue. “NCDEX’s contract lacked market making facility and hence there were liquidity issues for the traders to make an exit after making an entry. But over the years, the way number of CDSO refiners and the share of CDSO in overall edible oil imports has gone up it is a promising proposition to have CDSO futures product but with adequate market making support,” said a market participant requesting not to be named.
For NSE’s CDSO futures contract, sources revealed there are two market makers appointed, who would place quotes on both sides — buyer and seller — for the December and January contracts, thereby infusing the much-needed liquidity into the contract.
After witnessing a turnover of more than ₹44.67 crore with a trading of 4280 tonnes on the first day of its launch (December 1), the contract registered a turnover of above ₹53 crore during the rest of the days last week.
What is CDSO?
Shiva Nand Upadhyay, Research Associate of SMC Global Securities Ltd, told BusinessLine that CDSO is a product obtained after crushing soyabean. Though it is pure, it is not fit for human consumption. It requires further processing such as refinement, bleaching, deodorizing and filtration, before it is considered an edible oil to be used in cooking or food products. Refined soya oil is a refined, bleached, deodorized form of CDSO.
On the high volumes of trading, Vinod TP, Senior Analyst at Geojit Financial Services said
NSE is focussed on those commodities that are not traded in MCX or NCDEX. “NSE has gone for a unique product. That is why volume is higher”.
Hedging in CDSO futures can be done by refining companies. They can use various hedging strategies in CDSO and they can do arbitrage with NCDEX soya oil and NSE CDSO also, Vinod said.
Stating that degummed soya oil is imported into India from Argentina and Brazil to meet the growing deficit of edible oil, Upadhyay said Indian traders were importing degummed soya oil without hedging any price risk on futures exchanges till date.
A leading refiner said that NSE’s CDSO contract may need some initial support. “This contract can become very interesting, just like CPO futures, which is very lucrative with a lot of depth. CDSO hedging overseas is a cumbersome process involving currency hedging as well as other costs.” Till now such hedging was done only on CBOT exchange.
Trader sources revealed that while RSO prices are more influenced by local factors such as seed arrivals, crop size, etc, the CDSO prices are directly linked with international market, especially Argentina and Chicago. About two-third of overall soya oil requirement is met through degummed soya oil, making India among the top importers of the commodity.